London Calling: Whither ST?

STMicroelectronics' plan to exit from its joint venture with Ericsson makes sense, but its 2013 timetable suggests selling ST-Ericsson will not be easy.

It is no easy matter turning around a large operation like European chip company STMicroelectronics. That's why its critical to get ahead of the tidal forces that are shaping electronics to buy the time required, particularly when the hole you are in is largely of your own making.

ST's strategic plan presented on Monday (Dec. 10) was described only in general terms and included the bare minimum announcement needed to satisfy industry watchers and financial analysts: that ST would exit its joint venture with Ericsson. What's more, ST CEO Carlo Bozotti has given himself until the end of the third quarter of 2013 to achieve the exit. It is usually better to under-promise and over-deliver, but the tone of the announcement does not express the urgency of the situation ST currently faces.

ST-Ericsson has lost $2 billion in three years as revenues from key customers like Nokia and Sony Ericsson have collapsed. ST-Ericsson already owes its parents $1.4 billion, a sum that will likely continue to grow while the company remains on ST's books, and will then have to be written off as part of a sale.

Some analysts have marked up ST shares from a "sell" to "neutral" based on the strategy announcement. A couple have even moved ST stock up from "neutral" to a "buy". Good for ST, but I was looking for something more radical from Bozotti, like an announcement that a sale had been completed.

We were underwhelmed when incoming CEO Didier Lamouche announced a strategic plan in April for ST-Ericsson called ModAp that included 25 percent staff cuts and we are underwhelmed by Bozotti's latest announcement.

It is true that many other parts of ST's business are doing well, but it is also true that the latest announcement seemed to say the ONLY thing wrong with ST is the ST-Ericsson joint venture and that there is plenty of time to do something about that. During a conference call, Bozotti talked about focusing on specifics, but we have yet to see other details of ST's strategy.

Indeed, telling the world it wants out of ST-Ericsson, and must be out by the end of 3Q 2013, serves to limit Bozotti's freedom of movement in negotiations. So why did he tell announce a deadline? It looks like a first round of talks with possible partners have stalled, and Bozotti is effectively opening up the lists to try and drive interest.

I don't disagree that financials should be tempered with an awareness of social impact. But no business can fly in the face of the financial imperatives over the long term. The risk is that moving slowly may preserve some jobs in the short-term but put many more jobs in jeopardy in the longer term.

So why did (BST) he tell announce a deadline? Maybe to secure thousand's people job for a while not having yet an alternative. In such deep crisis moment we should sometime start thinking also about people rather than just financials.

Europeans, unfortunately, cannot business decision in a decisive and convincing manner. This behaviour appears to be very consistent over the past many years, hence STM / Infineon / NXP keep becoming smaller, smaller, .... If nothing drastic happens in the opposite way, STM could eventually goes the way of Renesas, i.e. dinosaur. In many ways, they are very similar, both a combination of many companies.
Once ST-E is left on its own to fight for survival, it may go to Samsung / TSMC / SMIC or anyone who can offer cheaper foundry services than the 28nm FDSOI. In particular, what is STM's roadmap for FDSOI beyond 28nm? AP with integrated multi-mode modem cannot practically survive for long on 28nm! Given that STM is NOT #1 in microcontroller market share, it won't be able to afford to keep the 28nm FDSOI especially if ST-E goes for other foundries because of cost reason (though a distinct possibility at the moment, one can never tell when and if it happens).
It appears that, at the end, semiconductor companies from US, Korea, and China/Taiwan could be the only ones left standing.

Good point Peter, wanting to sell and being able to sell are different things...but in business, real estate or life in general at the end it boils down just to money...how much are they asking for that money losing business?